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News and Sectoral Comovement

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Abstract

This paper tests the existence of strategic information complementarities as a source of sectoral comovement. A theoretical model derived in Veldkamp and Wolfers (2007) explains sectoral comovement by the assumption that firms rely too much on aggregate information to make output decisions. We find empirical support for this hypothesis: news on aggregate developments, on average, affect firms production plans significantly more than news on sector-specific developments. This result is based on a rich dataset on firm survey and media releases for Germany comprising 01/1999-07/2006.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 07-183.

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Length: 32 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:kof:wpskof:07-183

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Related research

Keywords: Media reporting; news; expectation driven business cycles; information com- plementarities; sectoral comovement.;

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References

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  1. Lawrence J. Cristiano & Terry J. Fitzgerald, 1998. "The business cycle: it's still a puzzle," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 56-83.
  2. Veldkamp, Laura & Wolfers, Justin, 2007. "Aggregate shocks or aggregate information? Costly information and business cycle comovement," Journal of Monetary Economics, Elsevier, vol. 54(Supplemen), pages 37-55, September.
  3. Ulrich Fritsche & Sabine Stephan, 2002. "Leading Indicators of German Business Cycles - An Assessment of Properties," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 222(3), pages 289-315.
  4. Beaudry, Paul & Portier, Franck, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations in Neo-Classical Settings?," CEPR Discussion Papers 4628, C.E.P.R. Discussion Papers.
  5. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  6. Russell Cooper & John Haltiwanger, 1993. "Evidence on Macroeconomic Complementarities," NBER Working Papers 4577, National Bureau of Economic Research, Inc.
  7. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
  8. Roger E.A. Farmer, 1994. "Indeterminacy and Sector-Specific Externalities," UCLA Economics Working Papers 722, UCLA Department of Economics.
  9. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  10. Andreas Hornstein, 2000. "The business cycle and industry comovement," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 27-48.
  11. G. Duggal, Vijaya & Saltzman, Cynthia & Klein, Lawrence R., 1999. "Infrastructure and productivity: a nonlinear approach," Journal of Econometrics, Elsevier, vol. 92(1), pages 47-74, September.
  12. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," 2006 Meeting Papers 31, Society for Economic Dynamics.
  13. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Building Blocks of Market Clearing Business Cycle Models," NBER Working Papers 3004, National Bureau of Economic Research, Inc.
  14. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
  15. Schröder, Michael & Hüfner, Felix P., 2002. "Forecasting economic activity in Germany: how useful are sentiment indicators?," ZEW Discussion Papers 02-56, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. Denton, Frank T., 1978. "Single-equation estimators and aggregation restrictions when equations have the same sets of regressors," Journal of Econometrics, Elsevier, vol. 8(2), pages 173-179, October.
  17. Schmitt-Grohe, Stephanie, 1997. "Comparing Four Models of Aggregate Fluctuations due to Self-Fulfilling Expectations," Journal of Economic Theory, Elsevier, vol. 72(1), pages 96-147, January.
  18. Zarnowitz, Victor, 1992. "Business Cycles," National Bureau of Economic Research Books, University of Chicago Press, number 9780226978901.
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Citations

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Cited by:
  1. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  2. Lena Dräger, 2010. "Why don't people pay attention? Endogenous Sticky Information in a DSGE Model," KOF Working papers 10-260, KOF Swiss Economic Institute, ETH Zurich.

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